The rufiyaa is pegged to the US dollar. The midpoint of the exchange rate is Rf12.85:US$1, and the rate is permitted to fluctuate within a band of ±20%. In recent years the currency has consistently grazed the weak edge of the exchange-rate band.

The pandemic-induced suspension of tourism earnings in much of 2020 slowed the country's accumulation of foreign-exchange reserves and pushed the value of the local currency in the black market below that maintained by the official peg. The ongoing recovery in international travel (albeit gradual), along with debt relief offered by the G20 countries, has lifted some of this pressure in 2021. Nevertheless, the peg remains relatively vulnerable, given the country's significant debt. Further extension of debt relief by the G20 is unlikely, but the Maldives could request leniency from its bilateral creditors, the most significant of which is China.

Although there is a significant risk that the government will be forced to weaken the currency if foreign-exchange reserves remain under pressure over a prolonged period, our core forecast is that the peg will be maintained as tourism receipts recover in 2022-23. However, the currency will continue to test the weaker edge of the band, especially as the outlook for the US dollar improves. The authorities will fully utilise the US$150m swap line with the Reserve Bank of India (India's central bank) to reduce pressure on the peg.